AI's Circle of Horror

FUTURE

AI’s Circle of Horror

There’s a secret in the AI industry that is observable in plain sight, but no one is willing to discuss it openly.

It’s like Lord Voldemort in Harry Potter; people are afraid to even mention it. And that secret is a word that, among all possible words, is a seemingly harmless one:

Circle.

But how can that word hold so much (dead)weight? Read on to get the answer.

In particular, we will review the following:

Macro estimates on the size of AI investments through the decade,

Financial deep dive into the agreements between OpenAI, NVIDIA, Oracle, and Coreweave, and the scary secret they share.

AI’s very troubled relationship with debt

AI’s even more troublesome relationship with, well, making money

And a rather doomish view coming from one of AI’s Godfathers (not Yann LeCun), arguing we are betting in the wrong direction.

The research for this week’s post will leave you very concerned. If you’re an investor in the S&P500, you’re probably not going to like this post. If you’re a public investor in NVIDIA, you’re definitely not going to like this post. And if you’re an investor in Oracle or CoreWeave, you’re going to hate it.

Let’s dive in.

The Frenzy Continues… For Now

Over the past few weeks, we have seen a significant escalation in the values and hype surrounding several AI mega-deals. But before we dive deep, a few numbers to ground ourselves.

How much are we talking about?

Now, to make sense of all this, to understand the magnitude, let me ground your perspective based on three questions:

What is the baseline figure that drives most large deals in AI today?

That number is the total capital cost of AI compute per gigawatt (GW) of power. That is, the value of a mega deal is based on how many GW you need and the cost per GW.

What is that number?

Jensen Huang recently stated that each GigaWatt of AI compute has a total capital cost of $50 to $60 billion, divided into ~60% in NVIDIA chips and gear, and the remaining 40% of other expenses (land, power, distribution, etc.).

And how much power is a gigawatt?

A data center requiring one gigawatt of power is equivalent to the power requirements of ~830,000 US homes, or ~2.5 million EU homes.

A single NVIDIA state-of-the-art server (each data center will have thousands of them) consumes the equivalent of a US home’s entire yearly electricity bill in three days.

To understand how to obtain those numbers, read the Notion GPU Maths 101 (available only to Full Premium subscribers).

And now, let’s get to it.

Numbers that don’t make sense anymore

Huge compute deals have been a thing for years now, but things have escalated recently.

The latest ‘mega deal’ is the NVIDIA – OpenAI announcement of a massive infrastructure pact: NVIDIA intends to invest up to $100 billion in OpenAI, tied to the deployment of 10 gigawatts of NVIDIA-powered AI systems.

The deal is…

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